Formula
The net volatility for a two-legged spread (with one long leg, and one short) can be estimated, to a first order approximation, by the formula:
where
- is the net volatility for the spread
- and are the implied volatility and vega for the long leg
- and are the implied volatility and vega for the short leg
Read more about this topic: Net Volatility
Famous quotes containing the word formula:
“Given for one instant an intelligence which could comprehend all the forces by which nature is animated and the respective positions of the beings which compose it, if moreover this intelligence were vast enough to submit these data to analysis, it would embrace in the same formula both the movements of the largest bodies in the universe and those of the lightest atom; to it nothing would be uncertain, and the future as the past would be present to its eyes.”
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“My formula for greatness in human beings is amor fati: that one wants to change nothing, neither forwards, nor backwards, nor in all eternity. Not merely to endure necessity, still less to hide it—all idealism is mendacity in the face of necessity—but rather to love it.”
—Friedrich Nietzsche (1844–1900)